API Group interims

API Group PLC a global supplier of foils, films and laminates.  I have a holding in my growth portfolio (epic code: API).

API's interim results announced on 3 December had little seasonal cheer about them.  Revenues were £56.4m down 1% on last year, although they were up 1.6% at constant currency. 

The really bad news came in operating profits (excluding exceptionals) that were down 20% at £2.8m, caused by the Foils Americas division, where sales were down 24% causing a £0.4m loss compared to a profit last year of £1.1m.

Underlying EPS fell 37% to 2.4p and reported EPS also 2.4p was down 29.4%, although an interim dividend of 0.75p was declared, up 7.1% on last year.

Free cash flow showed an outflow of £(4.8m), compared to an outflow last year of £(2.9m), after payment of dividends of £1m, the net cash of £0.2m from the beginning of the year was reduced to a net debt of £5.7m. 

Management state that "...The Group has experienced tough trading conditions so far in the second half, with the outlook for profits this financial year slightly down on previous expectations..."

Management state that the expected slow recovery in metallic pigment orders at Foils Americas will be partly offset by the seasonally weaker second half in the US market for graphics foils.  There was little good news elsewhere - Foils Europe is experiencing sluggish markets on the continent, while Laminates have strong order levels, profits will be diluted by a weaker sales mix and  Holographics is expected to drop below break-even in the third quarter.

Not comfortable reading; I continue to hold at this stage and will review my position at the full year and decide then whether to cut my losses.

 

Anite interims

Anite is a global provider of hardware and software solutions, systems integration and managed services within its core markets of Wireless and Travel. I have a holding in my growth portfolio (epic code: AIE).

Anite released their interim results on 2 December.  Revenue was up 3.3% to £49.0m and adjusted operating profit up 89% to £5.1m.  A good turnaround, but on weak comparatives.

Adjusted EPS was up 117% to 1.3p, with reported EPS 0.1p compared to a loss last year of (0.5)p.  The interim dividend was increased by 9.6% to 0.63p.

Although group order intake was down 4.6% to £49.4m, it still produced a book to bill ratio of 1.

Free cash flow was strong up from £3.8m last year to £6.3m.  Following dividend payments of £3.7m and the net proceeds from the sale of the Travel Business less the acquisition of Xceed producing £20.8m the company's net cash position was increased from £6.1m at the end of last year to £29.8m.  Placing the company in a healthy position, along with its strong FCF to develop the business.

Management commented on outlook for the rest of the year "...Given the recent momentum we have seen across the Group and the specific opportunities identified for the second half, the Board remains confident of meeting its full year expectations..."

A step in the right direction in returning the business to meaningful profits and at today's price of 84p, places the company on 15x expected earnings for this year, still below the industry median.

Aberdeen Asset Management finals

A global investment management group, managing assets for both institutional and retail clients from offices around the world. I have a holding in my income portfolio (epic code: ADN).

Aberdeen Asset Management released their final results today showing that net revenues were 3.6% higher at £1,117.6m and underlying profit before tax had increased by 1.6% to £490.3m.

With a 5% increase in average shares in issue due to the SWIP acquisition, underlying EPS decreased 4.1% to 31.1p, with reported EPS down 13.1% to 22.79p due to increased amortization and acquisition costs.  A final dividend of 11.25p was declared, making 18.0p for the full year – an increase of 12.5% and covered 1.3x by earnings and 2x by free cash flow.  Aberdeen Asset Management have an excellent record of paying out increasing dividends as demonstrated by the chart below, where the pay-out was increased by 18% pa over this period.

 

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Free cash flow at £442.2m was 3% below last year and after paying dividends of £222m and purchasing £64m of their own shares net cash was improved to £653.9m.

AuM were £324.4bn, a £124bn increase that included £134.9bn added from the SWIP acquisition.

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Management stated in their outlook "...We remain confident that, over the longer term, we will be able to deliver attractive returns, both for our investment clients and our shareholders..."

ADN is a strong dividend payer with plenty of headroom within their level of cash generation and net cash balances.  Despite halving my position in early 2012, they still represent 8% of my income portfolio and, have performed well over the 8 years I have held them, both in terms of the SP and more importantly the 16% pa growth in dividends I have received. 


            

Paypoint interims

Provides clients with specialist consumer payment transaction processing and settlement across a wide variety of markets: (energy pre and post-payment, telecoms, housing, water, transport, e-commerce, parking and gaming) through its retail networks, internet and mobile phone channels. I have a holding in my income portfolio (epic code: PAY).

Paypoint released their interim results on 27 November declaring net revenue had increased by 7.0% over last year to £57.9m, with transaction volume up 6.1% to 373.4m.

Operating profit was up 6% to £22.2m and EPS was increased by 8.3% to 26.0p.  As they mentioned in their first quarter IMS (discussed here), operating profit growth is less than revenue growth due to increased development, sales, marketing and IT investments, that management say will produce benefits in the future.   

An interim dividend was declared of 12.4p up 8.8%.

Free cash flow (FCF) was again strong with £6.9m generated, compared to £6.6m last year.  After payment of £16.3m for the interim & final dividends and £2.8m purchasing shares for share based remuneration, net cash declined by £12.9m to £28.7m.

With respect to the outlook, management state that "...Looking ahead, we expect our retail networks in the UK and Romania to continue to deliver profitable growth from our breadth of services and extensive client base. Trading since 30 September 2014 is in line with our expectations..."

Paypoint at 959p produce a 4% yield and almost a 20% margin of safety to their estimated intrinsic value (calculated by assuming 8% growth in FCF over the next 10 years and 3% in perpetuity, discounted by their cost of equity of 9.4%).  

Compass Group finals

Provides contract food, catering and support services to a wide range of commercial businesses and government departments operating in over 50 countries.  I have a holding in my income portfolio (epic code: CPG).

Compass Group released their final results on Wednesday 26 November and were as indicated in their trading statement on 29 September, commented on here.  The SP now is at an all time high of 1090p and is probably fully values the company. 

 

Revenue for the Group increased by 4.1% on a constant currency basis to £17.1bn and underlying operating profit increased by 5.9% to £1,245m, with reported operating profit at £1,217m up 51.7% due to goodwill impairments taken last year (see here for the details from last year).

 

The largest region North America had a good year with revenue up 6.8% on an organic basis to £8.2bn and operating profit increased by 7.9% on a constant currency basis to £666m. 

 

Europe & Japan continued to decline, this year by -1.5% on an organic basis to £5.7bn, but this was a slower rate than last year's 3%.  Operating margins were improved in this region through efficiency improvements and cost reductions, so operating profit increased by 1.2% on a constant currency basis to £409m.

 

Fast Growing & Emerging Markets saw good organic growth at 8.2% in revenues to £3.1bn and operating profits up on a constant currency basis by 7.6% to £226m. 

 

 

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EPS was 48.7p up 10.5% on a constant currency basis and 110% on a reported basis. The final dividend was increased by 10.6% to 17.7p, to give a full year dividend of 26.5p an increase of 10.4% and is covered 1.84 times by earnings.

Return on capital employed was over 25%, compared to their weighted average cost of capital of 8.2% and their 3year average free cash flow return on capital employed was over 15%.  These are very good indications of a business that adds substantial value, well above the cost of the capital deployed in the business, ensuring there is sufficient capital to invest in non-organic growth and deliver above market returns for their shareholders.

 

Free cash flow at £680m was similar to last year and with dividends paid of £444m, share re-purchases of £280m and a £1bn return of capital to shareholders, net debt rose by £1.1bn to £2.4bn.  Equity has been depleted by almost £1bn from last year to £1.8bn, due to the share re-purchases and the return of capital, consequently gearing is high at 130%.  So is this level of debt a concern for Compass?  Looking at a debt/EBITDA of 1.5x and operating cash flow of 47% of debt, whilst not amongst the best, is very comfortable.  Management though should reconsider their share re-purchase programme especially with a SP that is close to 10x its NBV.  Standard & Poors give Compass an A rating and consider it stable.  The company pays just over 4.5% on their mix of debt and the maturity profile is well balanced, as demonstrated by the chart below that shows the maturity dates for their debt:

 

Click on chart to enlarge

 

 

Looking ahead to next year, management state that the pipeline of new contracts is healthy and they expect to see further good performances in all of their regions.

 

For the longer term they expect to deliver further cost efficiencies, which will help to support future growth and further improve the operating margin.

 

Opportunities remain good for Compass to continue to grow the business; as management stated "...The structural opportunity in the outsourced food service market, estimated at more than £200bn, is a key growth driver.  With only around 50% of the market currently outsourced..." add to that the small regional players that service about 33% of the market and may be open to acquisition or loss of market share through competition, then Compass despite its size should have many years of good growth ahead of it. 

 

 

 

 

A good set of results from Compass, but at the current SP there is no margin of safety.  Patience can provide opportunities though, when you consider that during the past 12 months, when there was no change in expectations for the business, there is a 23% swing from the low to the high in the SP.  The major risk to the business remains food commodity prices. 

Globo trading update

A technology innovator delivering mobile, telecom and e-business software products and services. I have a holding in my growth portfolio (epic code: GBO).

Globo released their third quarter IMS today announcing that revenues for the first 9 months of the year grew by 46% to €73.2m and gross profit margin improved to 62% from 58% in the first half.  Management stated that the margin improvement reflected the effect of direct sales compared to indirect channels.

The net cash position at 30 September 2014 was €36.3m, this compared to €46.0m at 30 June 2014 and €42.4m 31 Dec. 2013, but is after payment of US$12.0m (~€9m) for the acquisition of Sourcebits in July 2014.  Management say they continued to generate free cash flow during the third quarter, but that is not evident from the numbers provided in the announcement, unless the associated costs of the acquisition and other investments were around €1m.

Management state that they are confident of meeting market expectations.

Sales growth is impressive, but many will still not be convinced by their ability to generate sufficient free cash flow commensurate with a business that is likely to turnover €100m this year.

 

       

ICAP interims

ICAP is an interdealer broker and provider of post trade risk mitigation and information services.  I have a holding in my income portfolio (epic code: IAP).

ICAP announced their interim results today with group revenue decreasing by 9% on a constant currency basis and 14.6% on a reported basis to £620m, in line with their trading announcement on 30 September, commented on here.

 

Trading operating profit (that excludes acquisition & disposal costs and exceptional items) for the six months was £100m, down 26% on a constant currency basis and 33.8% on a reported basis. Trading EPS was 10.1p down 37.7%, although reported EPS was up 51.7% at 4.4p due to lower acquisition disposal costs and exceptional items.  A maintained interim dividend of 6.6p was declared.

 

Free cash flow was a negative £17m and along with the final dividend payment of £99m were the main causes of net debt increasing from £96m at the beginning of the year to £204m.  

 

The current restructuring programme is expected to deliver annualised savings in excess of £60m, of which £43m will be realised this year, the majority in the second half.

 

Management's expectations for the full year remain unchanged, despite seeing some increased activity and positive sentiment, as they feel it is too early to predict whether those current activity levels will persist.

 

In a separate announcement ICAP stated they were in discussions to combine ICAP Shipping with Howe Robinson Group Pte Ltd, the leading ship-broking group to create one of the world's leading businesses in the sector. The newly formed ship-broking company is expected to be operational in the second quarter of 2015.  Further announcements will be made on the details of the deal. 

 

The SP fell 10% today to 386p, back to where the price was after the trading announcement on 30 September.  So no change really and the company is still seeking a replacement for the FD Torrens who announced his departure on that day.